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Pandora Media Sues Ascap Seeking Lower Songwriter Fees

Pandora Media Inc. (P), the biggest Internet radio service, sued the organization representing songwriters and composers to seek lower license fees for playing their songs.

Pandora, which is also lobbying the U.S. Congress for lower royalties on recordings, today asked a federal court in New York to set “reasonable” license fees from the American Society of Composers, Authors and Publishers through 2015.

Pandora is seeking a blanket licensing fee that would cover all songs represented by the 435,000-member group. The radio service has said the current fees prevent profitability. Ascap and Pandora reached an “experimental” fee agreement in 2005 that lasted until 2010. Terms of their current arrangement weren’t disclosed in the filing.

“The license rates and other material terms of the 2005 license agreement were presented to Pandora by Ascap as being effectively non-negotiable,” the company said in court papers. Pandora said the “experimental license agreement” it reached in 2005 for Internet sites and services “was ill-suited and not reasonable.”

The Oakland, California-based company, which offers programming to subscribers based on their musical preferences, held an initial public offering last year and says it has 150 million registered users in the U.S.

Court Jurisdiction

Pandora and Ascap were unable agree on licensing fees after more than a year of talks, Pandora said. The U.S. District Court in New York has jurisdiction over rate-setting if the parties can’t come to terms.

Ascap declined to comment on the suit, Lauren Iossa, a spokeswoman for the New York-based organization, said in an e-mail. Ascap represents the music of artists including Beyonce, Alan Jackson, George Gershwin and Duke Ellington.

This year Ascap negotiated a fee agreement with the Radio Music Licensing Committee, which represents large broadcasters such as CC Media Holdings Inc. (CCMO)’s Clear Channel. They will pay 1.7 percent of gross revenue minus deductions based on advertising commissions.

Pandora said in its lawsuit that Ascap refused to offer it the same terms. Clear Channel operates the iHeartRadio Internet service, a direct competitor to Pandora.

Pandora also claims that it’s entitled to lower rates because some large music publishers have announced they are withdrawing new media rights from Ascap and negotiating licensing fees directly with Web radio services.

Radio Rates

U.S. lawmakers in September introduced the Internet Radio Fairness Act of 2012, which if enacted would require music royalty rates for Web broadcasters to be comparable to what satellite radio and cable companies pay. Sirius XM Radio Inc. (SIRI) is the leading satellite radio company.

“Royalty rates for different formats of digital radio are astonishingly unequal,” Tim Westergren, Pandora’s co-founder, said in a statement in September. “Last year Pandora paid roughly 50 percent of its total revenue in royalties, more than six times the percentage paid by SiriusXM.”

For the six months that ended July 31, Pandora reported that its net loss increased to $25.6 million from $8.57 million a year earlier, while revenue rose 54 percent to $182 million.

Pandora rose 12 cents to $8.37 at 4:15 p.m. in New York Stock Exchange composite trading. The shares declined 18 percent this year before today.

The case is Pandora Media Inc. v. American Society of Composers, Authors and Publishers, 1:12-cv-08035, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha @bloomberg.net.

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